A Single Trade Pulled Half a Billion Dollars From TIPS Fund

(Bloomberg) -- The worst outflow in months from the world's biggest inflation-focused bond ETF was likely the work of a single investor.

BlackRock Inc.'s $23.5 billion iShares TIPS exchange-traded fund, ticker TIP, saw over 4.4 million shares worth roughly $562 million hit the tape at 4:24 p.m. in New York on Wednesday, data compiled by Bloomberg show. Though it's unclear if the trade -- the largest since April -- was to buy or sell shares of TIP, it lines up with the fund's nearly $557 million outflow yesterday.

BlackRock, Bank of America Corp., FMR LLC and Morgan Stanley were the only firms with enough holdings in TIP to make a trade that size, the latest available data from June show.

The outflow, which is the second-largest this year for TIP, comes over as U.S. stimulus negotiations are stalled. That's dampened inflation expectations, with five-year break-even rates posting their first monthly loss since March in September. That's cooled a steady rally for inflation-linked products such as TIP.

The massive block trade could be the result of model portfolio rebalancing, according to Bloomberg Intelligence's James Seyffart. Such activity is theorized to be driving a series of dramatic flows in recent months, including record rotations across a suite of Charles Schwab Corp. funds in a single week in June.

BlackRock's iShares 20+ Year Treasury Bond ETF, or TLT, saw a $556 million inflow on Wednesday -- nearly identical to TIP's outflow that day.

“The fact that this outflow occurred on one absolutely massive trade tells me it could have only been one of a handful of holders, and was likely a model portfolio trade or rebalance,” Seyffart said.

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